When Alan Greenspan presented the Federal Reserve's semi-annual reporton monetary policy to the Subcommittee on Domestic and International MonetaryPolicy, the Committee on Banking and Financial Services, and the U.S. House ofRepresentatives on February, Dr. Greenspan touted a cautionary yet favorableview of the U.S. economy. He states that "With inflationary pressuresapparently receding, the previous degree of restraint in monetary policy was nolonger deemed necessary, and the FOMC consequently implemented a small reductionin reserve market pressures last July." (Greenspan, 1996, Speech) During the Summer and Fall of 1995, the economy experienced astrengthening of aggregate demand growth. According to Greenspan, this increasein aggregate demand brought finished goods inventories and sales into nearequilibrium. The Fed's fine tuning of the economy seemed to be paying off.Greenspan had a positive outlook for the economy for the rest of 1995. Hestates "the economy, as hoped has moved onto a trajectory that could bemaintained--one less steep than in 1994, when the rate of growth was clearlyunsustainable, but one that nevertheless would imply continued significantgrowth and incomes." (Greenspan, 1996, Speech) Towards the end of the year, the economy showed signs of slowing.Fearing a prolonged slowdown or even a recession in the economy, and withinflationary expectations waning, Chairman Greenspan and the Federal Reserve cutrates again in December. (Greenspan, 1996, Speech) There are, of course, critics of 1995's monetary policy. Most of thecriticism came in the early part of 1995 when the Fed raised rates again. In the article "Are We Losing Altitude Too Fast" from the May 1, 1995issue of Time magazine written by John Greenwald, he explains that the economymight not be coming in for a "soft landing" like the fed predicts. Trying tosustain 2 to 3 percent growth might lead us into a recession. Mr. Greenwaldexplains how the Fed's actions in 1994 and early 1995 has hurt individuals andthe economy as a whole. "Corporate layoffs are far from over," says Greenwald,"they generally accelerate when firms find themselves in an economy that isweakening." (Greenwald, Time, 5/1/95, p80) Unemployment and layoffs aren't the only thing to worry about accordingto Mr. Greenwald. The automobile industry and the housing markets are bothgetting hit in the pocket books. Paul Speigel, owner of a New York cardealership explains his woes by saying '"We're doing our best to keep up thevolume by discounting, working on our customers, but the Fed's rate hikes havedampened the ability of many Chevrolet customers to buy that new vehicle."'John Tuccillo, chief economist for the National Association of Realtors statesthat the market (for new housing) "fell apart as mortgage rates rose above 9%last fall (1994), and still have not yet recovered." (Greenwald, Time, May 1,1995. p81) Another outspoken, and cynical opponent to the Fed's monetary policy isDr. Michael K. Evans, who is president of Evans Economics, Inc. and EvansInvestment Advisors, Boca Roton, Fla. Dr. Evans wote an article in the Aug. 21,1995 issue of Industry Week entitled "The Gang that Wouldn't Shoot Straight:Fed's Trample Over Their Own Rate Cut." Dr. Evans contends that lowering thefederal funds rate in July was a mistake because the economy was alreadystarting to recover without tampering by the Fed. He claims Greenspan knew fullwell that the economy was on the upswing, but cut rates anyway to try to ensurehis reappointment come March 1996. Dr. Evans claims that vice-Chairman AlanBlinder also knew of the recovery but "he could not face his collegues atPrinceton when he returned, unless he pushed for a rate cut." (Evans, IndustryWeek, Aug. 21, 1995. p122) Dr. Evans concludes that the Fed's actions in July were "purposelymisleading, cravenly political, and just plain stupid." (Evans, Industry Week,Aug. 21, 1995. p122) Many people applauded the actions of the Fed in 1995, and defend themfrom the rampant "fed-bashing". One of the defenders of the Fed's monetary policy and Alan Greenspan isRob Norton who wrote an article in the July 24, 1995 issue of Fortune entitled"The Blaming of Dr. Greenspan. (Federal Reserve Board Chairman Alan GreenspanTakes Blame for Economic Downturn)." Mr. Norton agrees with Greenspan that inFebruary 1995 it was essential to raise interest rates because of anunsustainable rate of growth. He says that Greenspan was ahead of the game bydoing this. "The conventional wisdom crowd claimed that here was no reason tofear that the economy was going to overheat," he goes on to say "By the fourthquarter of last year, real GDP was growing at a 5.1% rate--twice the averagegrowth rate most economists consider sustainable in the U.S., given populationgrowth and productivity increases." (Norton, Fortune, July 24, 1995. p39) Mr. Norton also does not believe that Alan Greenspan cut rates in Julyto ensure his re-nomination in March, 1996. He points out that during the 1988Presidential campaign, with inflationary pressures present, many economists feltGreenspan would not raise rates because he is a loyal Republican, and he did notwant to hurt the Republican's chances in the campaign. Chairman Greenspan wentagainst most people's predictions and raised rates "just days before theRepublican convention." (Norton, Fortune, July 24, 1995. p39) Another defender of the Fed's policies during 1995 is Michael Sivy, whois a chartered financial analyst and a former Wall Street research director,wrote an article titled "The Fed's Rate Cut Decision could Push The Dow to 4900and Postpone a Recession," which appeared in the Aug. 1995 edition of Moneymagazine. He stated that Greenspan "decided to send businesses and consumers aclear signal: Interest rates won't go any higher." But Greenspan still was onthe lookout for any inflationary pressures, so he reduced rates by a very smallamount in July, which will be followed by more small rate cuts. Mr. Sivy states"With the Fed fine-tuning the economy like that, we think the Dow could tack onanother 200 points to top 4900 by year-end." (Sivy, Money, Aug. 1995. p160) Through my research on 1995 monetary policy, I feel the Fed did a goodjob of monetary policy during 1995. During 1994 and early 1995 I believe theFederal Reserve were justified in their actions in stepping up interest rates.Inflationary pressures were definitely present at the time, and if the fed letthe inflation occur, how high would they let it go? This might also mean goingthrough disinflation in the future, which is a long and painful process. TheFed did the right thing by not even letting inflation "out of the bottle." As for the Fed's cutting of interest rates in the middle and latterparts of the year, I believe the data suggests the economy was slowing down,along with that, inflationary expectations were fading also. This made itrelatively easy for the Fed to lower rates. But they made sure they watchedinflationary pressures at the same time. I still haven't made up my mind whether Greenspan based part of hisdecision to cut rates on political reasons or not. Sure, he could probably make10 times more in the private sector, but I believe more goes into it than that.Many people see the Chair of the Federal Reserve as the 2nd most powerful personin the U.S. right behind the President, this in itself could persuade Greenspaninto pleasing the President who reappoints him. Another point would be goingdown in history. If Greenspan successfully obtains an unprecedented third term,he will probably be highly regarded in every history book yet to be made; it'sdoubtful that Greenspan would go down in history if he were the president ofthe Chase Manhattan Bank. As Rob Norton defended Greenspan in saying that heraised rates even though the Presidential election was just around the corner in1988; Greenspan was only in the 2nd year of his 4 year term, so there wasn't anysubstantial political pressure, he still had about 3 years left of his term. At any rate, I believe that the Fed had a very successful year ofmonetary policy. The stock market soared, inflation and unemployment are bothat respectable levels, so I just hope the Fed keeps it up, and President Clintonre-appoints Alan Greenspan.